35% tax on imported medicines in the US..!?

President trump has announced a 35% tax on drugs imported into the US. It is said that this decision may reduce the income of indian pharmaceutical companies that have a large entry into the US market. According to Nomura, the drug taxes may not be imposed today but may be postponed to a later date. It has been reported that the US may reiterate its position on taxes on drugs manufactured outside the US at the appropriate time. Pharmaceutical stocks are in focus as US President Donald Trump's 'Liberation Day' announcement is expected to announce reciprocal taxes on US imports in various countries and sectors. In this situation, it is said that indian generic drug companies such as Dr Reddy's Labs and Zydus Lifesciences may be affected. The domestic pharmaceutical sector could attract a maximum tariff of 35%, with 10% being a reciprocal tariff between the countries and 25% being a sector-specific tariff. This is based on World Trade Organization (WTO) data. The trade-weighted average of tariffs imposed by india and the US on products is 12%, while the US levies 2.2% on indian products. This translates to an average tariff differential of 10 percentage points.
However, Nomura said that the likelihood of such a drastic decision is very low. Moreover, most of the pharmaceutical companies it spoke to said that they would consider ways to pass on the impact of these tariffs to customers. In its base case, Nomura believes that pharmaceutical tariffs may not be imposed today but may be postponed. It also said that the US may reiterate its stance on tariffs on drugs manufactured outside the US in the future. Furthermore, we think this is the baseline scenario that the market is assuming ahead of these announcements. "In our assessment, a tariff of less than 10% could generate a positive reaction in indian pharma stocks, given current expectations. On the other hand, a tariff of more than 10% could trigger a further correction in pharma stocks," it said.

The US pharmaceutical trade deficit with india has widened in the last two years, attributed to the contribution of generic Revlimid in the US. These exports were US$ 1.2 billion in 2024, and were 10% due to the shortage, Nomura said. However, it predicts that it may decline further from current levels in the future. The cost of manufacturing generic drugs in the US is not significantly more economically viable than in India. Therefore, even if taxes are imposed, generic drug companies are unlikely to make a significant investment in the US, especially for low-value products. "Furthermore, there is uncertainty about whether these tariffs will continue in the long term," Nomura said. In this regard, let's know about the possible impacts of US tariffs on India's leading pharmaceutical exporters.

Sun Pharma: Nomura estimates that sun Pharma's US sales will be $2.1 billion in fiscal 2026 and $2.3 billion in fiscal 2027. And specialty brands account for 55-57 percent of total revenue. Nomura estimates that 10 percent of sun Pharma's US specialty revenue is designed in the US. This mainly includes the Levulan product. The remaining 90% of specialty products are developed outside the US. The best-selling product Ilumya is manufactured outside the US, and could very well be manufactured in Ireland. Since Ilumya is a long-term treatment drug, sun Pharma has the opportunity to pass on the impact of the tax to customers and maintain current sales levels.
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Sowmiya Sriram

02/04/2025 05:59 PM